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Why Foreign Businesses Flee China

Posted by Author on December 23, 2008

The Chosun Ilbo, S. Korea, Dec.23,2008 –

The Chinese government recently announced its intention to sue foreign businesses for leaving the country without permission. Chinese officials said they plan to seek legal assistance in the countries of foreign businesses to receive back-pay and debt owed in China — and even seek the extradition of law-breakers.

Some Chinese media have reported that such “abnormal” exits from China mostly involve small- and mid-sized Korean businesses. But this problem does not involve only Korean businesses. Recently, Guangdong Province formed a special taskforce to supervise companies that owe money to workers and dispatched the team to Dongguan city. Hong Kong and Taiwanese businesses are based there. During September and October of this year, 117 businesses fled from Dongguan, according to Hong Kong media.

It is true that many small- and mid-sized Korean businesses secretly shutter their plants and escape China. In Qingdao, where Korean businesses are clustered, around 200 out of 8,000 companies are said to have fled China without permission. We cannot back these companies. It appears that China has come out with these hard-line measures to deal with such businesses, since it is faced with an increasing number of discontented workers as its economic slowdown intensifies and more factories close.

But it is difficult to criticize businesses that flee. When attracting foreign businesses, China offers a “one-stop” service, whereby one government department handles procedures. But when a foreign company tries to leave China, company officials must visit individual government branches handling labor, tax, customs, foreign exchange, social security, real estate and other measures and undergo procedures at each of those offices. Chinese authorities do not have much experience handling corporate liquidation, meaning a lack of consistency in interpreting regulations. As a result, it may take anywhere from eight months to two years to complete a liquidation process.

Moreover, when word spreads that a foreign business is trying to close down operations in China, workers and suppliers storm into the main offices and threaten staff. Business people say some are lucky to get out alive. Proper liquidation procedures will not be undertaken while the rule of law is not observed in China.

The Chosun Ilbo

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